Buffalo Wild Wings 2011 Annual Report Download - page 23

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction
with our consolidated financial statements and related notes. This discussion and analysis contains certain statements that are
not historical facts, including, among others, those relating to our anticipated financial performance for fiscal 2012, cash
requirements, and our expected restaurant openings. Such statements are forward-looking and speak only as of the date on
which they are made. There are risks and uncertainties including those discussed in Item 1A of this 10-K under “Risk
Factors.” Information included in this discussion and analysis includes commentary on company-owned and franchised
restaurant units, restaurant sales, same-store sales, and average weekly sales volumes. Management believes such sales
information is an important measure of our performance, and is useful in assessing consumer acceptance of the Buffalo Wild
Wings
®
Grill & Bar concept and the overall health of the concept. Franchise information also provides an understanding of
our revenues because franchise royalties and fees are based on the opening of franchised units and their sales. However,
franchise sales and same-store sales information does not represent sales in accordance with U. S. Generally Accepted
Accounting Principles (GAAP), should not be considered in isolation or as a substitute for other measures of performance
prepared in accordance with GAAP and may not be comparable to financial information as defined or used by other
companies.
Overview
As of December 25, 2011, we owned and operated 319 and franchised an additional 498 Buffalo Wild Wings Grill &
Bar
®
restaurants in North America. We believe that we will grow the Buffalo Wild Wings brand to about 1,500 locations in
North America, continuing the strategy of developing both company-owned and franchised restaurants.
We believe we will have 60 company-owned and 50 franchised restaurant openings in 2012 and have set an annual net
earnings growth goal of 20%. Our growth and success depend on several factors and trends. First, we will continue our focus
on trends in company-owned and franchised same-store sales as an indicator of the continued acceptance of our concept by
consumers. We also review the overall trend in average weekly sales as an indicator of our ability to increase the sales
volume and, therefore, cash flow per location. We remain committed to high quality operations and guest hospitality.
Our revenue is generated by:
• Sales at our company-owned restaurants, which represented 91% of total revenue in 2011. Food and nonalcoholic
beverages accounted for 76% of restaurant sales. The remaining 24% of restaurant sales was from alcoholic
beverages. The menu items with the highest sales volumes are traditional and boneless wings at 20% and 19%,
respectively, of total restaurant sales.
• Royalties and franchise fees received from our franchisees.
A second factor is our success in developing restaurants in new markets. There are inherent risks in opening new
restaurants, especially in new markets, including the lack of experience, logistical support, and brand awareness. These
factors may result in lower than anticipated sales and cash flow for restaurants in new markets along with higher preopening
costs. We believe our focus on our new restaurant opening procedures, along with our expanding North American presence,
will help to mitigate the overall risk associated with opening restaurants in new markets.
Third, we continue to monitor and react to changes in our cost of goods sold. The costs of goods sold is difficult to
predict, as it ranged from 27.2% to 30.6% of restaurant sales per quarter in 2011 and 2010, mostly due to the price fluctuation
in chicken wings. We work to counteract the volatility of chicken wing prices with the introduction of new menu items,
marketing promotions, focused efforts on food costs and waste, and menu price increases. We will continue to monitor the
cost of chicken wings, as it can significantly change our cost of sales and cash flow from company-owned restaurants. We
continue to explore purchasing strategies to lessen the severity of cost increases and fluctuations, and are reviewing menu
additions and other strategies that may decrease the percentage that chicken wings represent in terms of total restaurant sales.
We are currently purchasing chicken wings at market prices. The market price for traditional wings reached its lowest price
in several years during the second quarter of 2011. The market price trended substantially higher toward the end of 2011. The
chart below illustrates the fluctuation in chicken wing prices from quarter to quarter in the last five years.